Backing The Best Managers In Private Markets

“They sit down with the manager who has to put together this monthly report, which has to be done every month. What they do is open up a clean Excel doc, pull sources from five different areas, populate it, and put it together. It takes 10 hours. By building various AI-powered tools to pull in data and put it together, what was taking 10 hours is now less than an hour, even with checking, and is delivered in a much better, more thorough, customized, and standardized way.”— Peter Lacaillade

The New Breed of AI-Powered Venture Firms · p. 16

Technology & Engineering · Operations & Execution

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10 hours to 1 hour via workflow automation

“To do it right, you need significant capital and a substantial, not too large, team with skill sets in both finance and AI engineering. Long Lake, for reference, is a holding company founded a couple of years ago by Alex Taubman, who had been at Oaktree, and Zack Frankel, who was co-founder of Ramp and co-founder of Cognition. You look at what they're doing.”— Peter Lacaillade

The New Breed of AI-Powered Venture Firms · p. 15

Technology & Engineering · Business & Entrepreneurship · Operations & Execution

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Finance plus engineering skill, not too big

“One thing I really do, and continue, is make sure we are trying to find contrary views or people who are not doing the fund. I don't even do many on-list reference calls. I'm generally just assuming they're all good and focusing on going off-list. But it's also really important that you have very trusted relationships with people on the other side of the phone. There's an example I can think of recently with a fund we passed on. I know one of my good friends works at that firm, and I called him.”— Peter Lacaillade

Managing Risk in Private Equity · p. 7

Strategy & Decision Making · Psychology & Behavior

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Skip on-list calls; hunt for contrary views

“Lower middle market varies depending on the business model, industry dynamics, growth, et cetera. But say a typical small business will trade for five to six times EBITDA. On the low end, maybe if it's a really great business with high growth, it's five to eight times EBITDA. Whereas when you scale that, taking it from somewhere in the 2 to 7 million of EBITDA up to 20-plus, that is valued by the market somewhere between 12 to 16 or 18 times.”— Peter Lacaillade

The Changing Landscape of Asset Management · p. 11

Business & Entrepreneurship · Economics & Markets · Operations & Execution

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Multiple expansion from 5x to 15x via professionalization

“What we strive for in our program is top quartile returns, which typically means an additional 5% plus on top of the 3 to 5% that you expect over public equities. We target high-teens to low-20s IRRs. We put in our book 16 to 18% net IRR and multiples around 2.5x. One thing I saw when I worked at HarbourVest Partners: there was a lot of enthusiasm around large-cap buyouts leading up to 2007.”— Peter Lacaillade

Institutional Scale Wealth Management · p. 5

Business & Entrepreneurship · Psychology & Behavior · Economics & Markets

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Missing best vintages by following crowd

“Some of our greatest deals have been very operationally focused. These teams carve out a division, take on a ton of complexity, and succeed. What's really hard is generating alpha doing consensus trades. By the way, those can still make money. There are friends of yours in Greenwich who will be very successful financially by buying businesses that lower middle-market firms professionalized, generating somewhere between a 2x and 2.5x gross and maybe high teens net.”— Peter Lacaillade

Traits of Top Managers · p. 14

Strategy & Decision Making · Economics & Markets · Operations & Execution

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Need buyers willing to pay 15x for what you built at 7x

“The approach that Greenoaks takes is the opposite of the typical model. Usually, people hire more, delegate more, and cover more of the waterfront. Greenoaks has shifted to having Neil at the tip of the spear for almost all first meetings. Short of having himself, his wife, or his kid in surgery, he'll be there for that first meeting, prepared, adding value, and ready to negotiate a deal on the spot if needed.”— Peter Lacaillade

The New Players in Early-Stage Deals · p. 19

Leadership & Management · Strategy & Decision Making · Operations & Execution

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Scale by doing less, not hiring more

“Generally, I think it's pretty crappy. The banks like Goldman Sachs, Morgan Stanley, J.P. Morgan, they're great firms; they can do nice things on the lending side. But in general, I think you get real adverse selection doing private investments through those platforms because they have fee arrangements with these firms, and they will only put a firm on the platform if there's some fee share. The best funds are heavily oversubscribed and don't take wealth management dollars.”— Peter Lacaillade

Why the Industry Needs a Reality Check · p. 8

Business & Entrepreneurship · Economics & Markets · Strategy & Decision Making

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Banks show what they're paid to show

“I think you run the risk that a lot of people are going to have pretty mediocre experiences in private equity because a lot of the products that are being put together to cater to the high-net-worth or even mass affluent market are done by really large-cap shops in vehicles that have lower cost of capital. The bids from the sophisticated buyers for these assets came in at mid-80s pricing.”— Peter Lacaillade

Managing Risk in Private Equity · p. 6

Economics & Markets · Strategy & Decision Making

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Forced deployment destroys returns

“It was the summer of 2012. I'd been basically a year on the job. Josh Kushner was bringing in SCS and Rothschild as the two LPs. One of our families, through an idiosyncratic thing, got angry. It was two-thirds of the commitment we were going to make. They backed out really last minute. I remember talking with Jared Weinstein, and he said, 'This is pretty baked.”— Peter Lacaillade

The Power of Support · p. 28

Leadership & Management · Business & Entrepreneurship · Psychology & Behavior

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Partners asked how to solve, not why

“We use pooled vehicles that we set up every two years. We get the money from our clients and then allocate across a series of different funds and co-investments. You don't want to do it every year; you want to do it every two years. But you also don't want to do it every three to four years. Every two years, you get the right mix of underlying buyout, growth, venture funds, and co-investments. The venture funds often raise in two-year cycles, so it's nice.”— Peter Lacaillade

Institutional Scale Wealth Management · p. 4

Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution

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Two-year cycle matches fund raising cadence

“My advice to GPs: really focus on a smaller number of higher-quality meetings, not doing a spray shot across a hundred different LPs globally, but to be deliberate about picking the 10 to 25 you want to talk to, with a 30 to 60% hit rate. You have to understand: what is this LP's capital situation? What are they looking for right now?”— Peter Lacaillade

Who Peter Would Invest With · p. 24

Strategy & Decision Making · Business & Entrepreneurship

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Target 10-25 LPs with 30-60% conversion

“One thing that worries me is the game that the biggest players, Andreessen, Lightspeed, GC, are playing. Doing $10 million on $50 million post-money might make sense for them. But maybe the company only needed to raise $3 to 4 million; they could have done $4 million on $20 million instead. That can be bad for the company and probably bad for the seed-stage firms that don't have enough money to play. So not everyone's aligned. They're playing different games.”— Peter Lacaillade

The New Players in Early-Stage Deals · p. 19

Economics & Markets · Strategy & Decision Making

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Too much capital harms company and ecosystem

“We basically carved out about a third of our venture budget to invest in these emerging solo capitalists. You had very credible people deciding not to join firms, but instead be their own kind of firm and still get access to the best companies. Often they were introduced through Thrive, which has been the most prolific introduction source for us. But Andreessen Horowitz, Founders Fund, and connectivity around our network also played a role.”— Peter Lacaillade

The New Players in Early-Stage Deals · p. 19

Business & Entrepreneurship · Strategy & Decision Making

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One-third allocation to solo capitalists

“Shore Capital is the exception. Justin and his team have been incredible to watch in their evolution. They started off doing microcap healthcare buyouts and have been very disciplined in keeping the microcap healthcare side small. The returns for Shore are exceptional, but what they've also done is deliver really high-quality businesses to their sellers, which is not something you can say for every healthcare roll-up.”— Peter Lacaillade

Who Peter Would Invest With · p. 25

Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution

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Expand but keep core small and excellent

“Thrive was very clear: stage-agnostic, industry-agnostic. They didn't want to be put in a box. Some people say too much in their fundraise early on and box themselves in. Josh did the opposite. He was very open. They've continued to evolve and have emerged as one of the most important growth investors in the world. Right now, with their holding company, they're doing buyouts, using AI to enhance fragmented industries.”— Peter Lacaillade

The New Breed of AI-Powered Venture Firms · p. 15

Strategy & Decision Making · Business & Entrepreneurship

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Avoid boxing yourself in early

“There's this guy we're backing right now, Jordan Dubin, who hasn't even graduated yet from HBS. Over the two years he's been there, with two of his former partners at L Catterton, they have done a garage door company, Guild Garage Door. It is well north of 30, maybe north of 40 million in EBITDA. Just run through walls, going to work harder than anyone. He was an athlete. He doesn't have a chip on his shoulder; I think he has a boulder on his shoulder.”— Peter Lacaillade

Traits of Top Managers · p. 12

Business & Entrepreneurship · Psychology & Behavior · Leadership & Management

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Boulder on shoulder, not chip

“I remember a bunch of companies back when I was first starting SCS in 2011 through 2014. They would have websites saying they did real estate online, but all it was was a shiny website with no substance, just trying to make the user experience look cool. It's like having A-plus teams go extremely deep and build something specifically to solve a problem versus just selling a product.”— Peter Lacaillade

The New Breed of AI-Powered Venture Firms · p. 16

Technology & Engineering · Strategy & Decision Making

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Shiny UI not substance; go five layers deep

“We're flexible in our mindset. A lot of our capital invests out of a 12-year vehicle with three-year extensions. We need some understanding around exit rights toward the end of the fund's life. In reality, if Long Lake is successful, they will likely take it public. They're like a private equity firm in some ways, but with a substantive technology story. Instead of trading at a teens multiple, it could trade north of that because of the AI story and the different areas it can enter.”— Peter Lacaillade

Comparing Different Fund Structures · p. 17

Business & Entrepreneurship · Strategy & Decision Making

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Holding company IPO creates earlier optionality

“You're getting into a partnership that usually is 10 years plus three years, and then there could be extensions beyond that. Often these things are lasting 15-plus years, which I think is longer than the average marriage. You really need to know the character of the partner that you're investing in, and understand that they're going to be good partners in good times and bad.”— Peter Lacaillade

Managing Risk in Private Equity · p. 7

Leadership & Management · Business & Entrepreneurship · Psychology & Behavior

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Character over capability in 15-year partnerships